First, congratulations to all the investors who didn't buy shares of Facebook (NASDAQ: FB) when it went public Friday. You already are ahead of the game!
Lesser congratulations go to the new Facebook shareholders who weren't stampeded into driving up Facebook's share price into the stratosphere, where it would have lingered briefly before beginning its inevitable and likely rapid descent.
Speaking of which, Facebook shares plummeted Monday morning to 33.00, five dollars below the $38 offer price and 13.7% below Friday's closing price of 38.23. It appears Facebook's underwriters, who stepped in Friday to prevent shares from falling below the offer price, aren't prepared to prop up the stock indefinitely.
This leaves potential flippers in a tough spot. Now, barring a big spike north in the near future, they'll have to hang on to Facebook shares and hope that the social networking giant can satisfactorily answer serious questions about its growth rate, ability to deliver a decent ROI for advertisers, and mobile strategy. Serves the flippers right.
Sadly, smaller investors who jumped on the Facebook bandwagon on Friday who weren't looking for a quick score must hope for the same thing. And I think they're going to be disappointed.
While there are a number of possible reasons why Facebook's IPO failed to pop, one of those reasons isn't that the IPO and company weren't hyped enough. This was the most highly anticipated initial public offering in at least eight years, and the Wall Street manipulation machine was in high gear since last fall.
Yet the rubes and suckers didn't line up to take the bait. Among the reasons I've seen proposed is that the IPO was anti-climactic (Facebook shares have been trading in the private-stock marketplace for four years before last Friday) and that investors are leery of betting on a company totally controlled by a 28-year-old (Mark Zuckerberg) who seems slightly eccentric and openly hostile toward the idea of answering to shareholders.
Those two factors indeed may partially explain Friday's Facebook fizzle and Monday's steep drop in share price.
But I think there are other, more important reasons. Here's one: While it's hard to underestimate the gullibility of the investing public based on history, there seemed to be a collective moment of sobriety on Friday. And I think it's because the months-long build-up to the IPO was so blatantly manipulative (was there ever one single source quoted by name in all the articles about Facebook's value, growth and prospects?) that retail investors could see the strings being pulled. And that made them temporarily cynical enough not to start (or join) a feeding frenzy.
The other big reason -- and I admit this reason reflects my personal sentiment about Facebook -- may be that investors think Facebook has peaked. They see slowing revenue growth, problems with monetizing mobile in an increasingly mobile world, and advertiser dissatisfaction (highlighted by General Motors' withdrawal of its Facebook ads on the grounds that they were ineffective).
Mostly, though, they sense Facebook Fatigue all around them. Many of Facebook's vaunted 900 million members are users in name only. Some have grown tired of Facebook -- how could you not tire of the insipid discourse that dominates the typical Facebook wall? -- and others only signed up under some form of duress (primarily peer and professional pressure and the fear of missing the cultural boat).
The bottom line is, it's hard to get excited about the future of a company and a service that likely faces a decline in interest and use. Buying shares of such a company isn't investing, or even gambling. It's throwing away your money.